"There comes a point when the debt overhang gets so big that nothing, other than capitulation by creditors and a massive programme of debt forgiveness, is capable of resolving it. As things stand, the mechanisms don't exist to allow for such a resolution.
The normal conduit is currency adjustment, which has the effect of devaluing the external indebtedness of deficit nations and clawing back lost competitiveness. But that cannot happen within the eurozone, while the mercantilism of Chinese economic policy prevents in the Asia/America trading relationship either.
The same sort of currency wars that plagued the interwar years are already fast establishing themselves. Horrified by the effects of its safe haven status on industrial profitability, Switzerland has promised to print as much money as it takes to depress the Swiss franc to more tolerable levels.
Repeated rounds of quantitative easing in the US and UK have much the same effect of debauching the currency and gaining trade advantage. It can only be a matter of time before Japan follows Switzerland into similar action."
Friday, September 9, 2011
Quote of The Day
Jeremy Warner on Osama's legacy (i.e.: the banking/sovereign debt crisis):